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Disparity threatens regions with atrophy

THOUGH the international community is rosy about Slovakia's bold tax, labour, and pension reforms, leading institutions have not turned a blind eye to the gap that continues to grow between the wealthy western and underfed eastern parts of the country.Worrying regional imbalances are not Slovakia's pain alone, as the Czech Republic and Hungary also appear to be struggling to implement effective policies to lift their regions so that they at least approach the living standard that people in their capitals enjoy.

THOUGH the international community is rosy about Slovakia's bold tax, labour, and pension reforms, leading institutions have not turned a blind eye to the gap that continues to grow between the wealthy western and underfed eastern parts of the country.

Worrying regional imbalances are not Slovakia's pain alone, as the Czech Republic and Hungary also appear to be struggling to implement effective policies to lift their regions so that they at least approach the living standard that people in their capitals enjoy.

In its latest EU-8 Quarterly Economic Report, which monitors the development of new EU members, the World Bank compliments Slovakia's new economic muscle but also diagnoses the regional imbalances in EU-8 countries as a twitch that needs effective treatment.

"In addition to rapid growth (external convergence), countries also aim for balanced regional development (internal convergence), but there may be a trade-off in the medium term," reads the World Bank report.

According to the report, the level of income of the EU-8 reaches 40 percent to 80 percent of the "old" EU members' average, but the regional income level imbalances have been increasing. Most countries post high unemployment rates, preserving islands of poverty.

The wealthiest regions of Slovakia and the Czech Republic have an income per capita three times higher than their neediest parts.

The concentration of people with university degrees in the biggest cities of Slovakia is double or triple the national average.

The country has its nests of economic growth in Bratislava, Košice, Žilina, and Banská Bystrica.

László Gyurovszky, the country's Minister of Construction and Regional Development, agreed that there were quite significant differences between the regions, but stressed that these disparities are considerable in productivity rather than in income.

There is an ongoing discussion about whether the state has been using all of its available tools to balance the living standards of people in the western and eastern parts of the country.

"The state is not an entrepreneur. It is not Slovakia's task to invest in the regions; that is something that investors ought to do. The only thing the state has to do is to create the best possible conditions for investments.

"This is being done by means of the new tax system, the amended labour law, the change of the overall legal system etc, all of which focus on attracting foreign investors to Slovakia," Gyurovszky told The Slovak Spectator.

According to the minister, the National Development Plan, the EU's structural funds combined with state aid, and the Operational Programmes of the ministry aim to bridge the gap between the regions.

"The state has to invest in the transportation infrastructure, because building new highways enables foreign investors to invest in the regions. For the same reason we are also focusing on environmental investments, to bring drinking water everywhere, to build drainage and sewage facilities," Gyurovszky added.

However, experts warn that feeding the poor regions with state aid to support people in their islands of poverty at any price might not be the best solution.

"In the event that aid is cut, the situation of the region might get even worse," World Bank economist Anton Marinčin told the news wire SITA.

According to him, the best plan is to support labour migration.

Work force mobility remains among the most important factors for long-term business development, and human resources experts agree that Slovakia continues to have problems with this factor.

State officials also agree that injecting state aid into the weak regions "at any price" is a waste of money.

"We have to support those projects that increase the existing potential present in the given region. For example, building a hiking trail in the mountains would mean a long-lasting investment, while we would not plan an industrial park in the same region. That would be a waste of money," Gyurovszky told The Spectator.

The ministry also focuses its operational programmes on strengthening human resources in the weak regions where qualified personnel will be needed for any further investment.

According to the minister, municipalities can also do their part to encourage development.

"Municipalities themselves have to present feasible, high-quality projects. Foreign investors will chose the best locations; the state cannot decide for them," said Gyurovszky.

Regional differences, World Bank experts say, result from historical and geographical factors, which became even more pronounced after the transformation of the countries over the 1990s.

Regions with strong state-controlled industry or agriculture sectors were hit the hardest. These spots mostly fall far from the capital or from mayor transportation arteries.

The World Bank sees a solution in investments in human capital and key infrastructure projects, particularly in support of emerging, market-driven growth poles within countries, as well as spending aimed at improving the overall investment climate.

"Meanwhile, administrative and technical capacity needs to be strengthened - in particular at lower levels of government - to facilitate the full and efficient absorption of EU aid. Needless to say, the additional spending should be consistent with medium-term fiscal consolidation plans," the World Bank report says.

The European Commission has also proposed that the union continue its relatively generous policy of solidarity by funnelling finances to poorer countries and regions.

Between 2007 and 2013, this aid should present 0.41 percent of the GNP of all the 25 countries.

26. Jul 2004 at 0:00
| Beata Balogová

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